Six Keys to Contract Negotiation

Do you want to win?  Of course you do.  The whole “the way you play the game” stuff … nobody really buys that.  Really, in their heart of hearts, everyone wants to win.  When I was growing up we played dominoes — Shoot the Moon, especially — a lot.  We’d play far into the night, my parents and grandparents, and maybe an aunt or cousin or so.  We’d forget whose turn it was to deal, and we’d pass a jar of Mentholatum from person to person to keep track, then forget to pass the jar … man, we knew how to party.  We’d keep a score pad — Us and Them, and the scores would march across the page, line after line of numbers as bidders made their four, went set, shot over each other and made it, shot over each other and DIDN’T make it, etc.  I’m very competitive.  And very good at dominoes.  And I stink at cards, so I don’t play cards.  I like to play what I know I can win.

Real Estate is a competitive field, no question.  There we are, Us and Them, Sellers and Buyers (or vice versa), Clients and Realtors, Selling Agents and Listing Agents, Price and Concessions, on and on.  But … this is a sport, not a war.  And the way we play the game matters.

So how do you play to win?

First, of course, you define ‘win’.  Don’t laugh; I mean it.  Because of course everyone who wants to buy a home wants to buy it “at a great price” — i.e., for less than it’s worth.  And everyone who sells a home wants to sell it for as much as they can.  No one wants to leave money on the table.  I don’t, either; I’m not speaking from some kind of austere cloister of high-minded asceticism.  I want to make money, too (well … I want to spend money, and since I’d rather not go to jail, I’ll make it legally first).

However, money — and a Good Deal — is a means to an end.  Most buyers’ needs are really more like: a) timeframe; b) monthly payment, & c) house specs — location/bedrooms/closet size/etc.  Most sellers’ needs are: a)  timeframe, & b) net profit.  These needs have nothing to do with the other party or even with the agent or market; it’s all you, baby.  If your desires for this real estate transaction are all about ripping someone off, it may be time to re-evaluate your position.  Or put another way, it’s only when the seller’s and buyer’s needs are BOTH met that you have a successful deal. Do you actually know what you want?  And is what you want realistic?   Because even though the check you bring to or get at closing is important, the moving-on-with-your-life and being-happy-where-you-land-next is so much more so.  What good will it do you to get a great deal on a house in which you’ll be miserable?  Or what do you gain by duping a buyer into offering more for your home than it will appraise for?  When the contract goes bust two weeks from closing and everybody’s ticked off and you’ve made another three or four mortgage payments while you re-negotiate, or even put it back on the market … it’s messy.  And unnecessary.

So here’s Another Way.  Here are my Six Keys to Contract Negotiation:

I.  There’s no reason to be rude.  Keep your rage for the evening commute.  Every player in this — buyer, seller, agent, lender, etc. — is a person and deserves to be treated courteously.  Even when you’re telling them no.

II.  Buyers:  Sellers have needs, too.  Your move is the first move; you draft an offer and they respond.  Their response should let you know more about what they need.  Remember: if you can meet their needs, you can get your house.  If you can slay (or befriend) the dragon, you can win the treasure.

III.  Sellers:  An offer — even an insultingly low offer — is the beginning of a conversation with someone who wants to buy your house.  You don’t have to accept their offer, but it’s wise to at least continue the conversation.  “Oh, I couldn’t possibly accept anything lower than …”

IV.  Distance thyself — it’s not brain surgery or a deepwater oil spill, and nobody’s going to die here.  This house is not an extension of yourself; it is not an embodiment of your past or a vision of your future, and the numbers flying fast and furious are not judgments on your worth.

V.  Think possibilities, and keep an open mind.  Each offer or counter is a possibility, not a prescription.  “Oh, that won’t work for you?  Let’s try this.”  It’s like shopping, but without the florescent lights and three-way mirrors (thank God).  It sometimes takes a while to find the right fit.

VI.  When you have an offer, that’s awesome!  And not at all the end.  Stuff comes up in the contract to close process, and contracts can be — sometimes must be — re-negotiated.  THIS is when the focus on crafting a win-win deal really pays off:  all parties are still philosophically invested in the deal and willing to take on the challenges and work toward solutions, rather than bitterly relishing the deal’s failure.

Market Report: 1st Quarter 2010

So what happened this first quarter?  Let’s look at some more numbers, shall we?

Well, January sales numbers were down*; 706 homes closed, compared to 1061 in December & 741 in the previous January.  In February, things picked up with 971 closings, compared to 997 in the previous year, and March saw a lovely 1435 sales, compared to 1259 the previous year.  The other side of the picture — the # of houses sitting on the market that did NOT sell — was fairly positive, too; by the end of January there were 7619 active listings, compared to 8649 the previous year.  The trend continued (with moderation) in March, with 8454 active listings at month’s end, compared with 8659 active listings at the end of March ’09.  April saw the gap close, with 8411 listings remaining at the end of the month, versus 8422 in April ’09.

Home values in January: average price, $138,937; median price, $119,900, which is down from Dec’s $147,246 average & $127,000 median.  January of ’09 saw an average price of $146,837 & median of 125,000.  February picked up with an average price of $149,025 & a median of $129,900; Feb ’09′s average price was $139,073 & median was $123,500.  March’s average price dropped just a tad to $143,164, & median to $126,500, compared with the previous March’s $141,072 & $125,000, respectively.

Or let’s look at the sales prices a different way, and see how they’ve held up in a cyclical fashion comparing them with the previous market performance at that time of year:

Another way to look at home prices is to examine the total amount of money that was spent on houses during the month, or Gross Closed Volume.  GCV (I don’t actually know if that’s a real acronym that people really use, but it’s easier than typing Gross Closed Volume, so …) for January was $98,089,259, compared with December’s $152,228,122 & the previous January’s $108,659,675.  February was up at $144,702,914 compared with the previous year’s $139,073,408; March saw $205,439,932 compared with the previous year’s $177,609,376.

And finally, average Days on Market for Jan: 83, Feb: 85; Mar: 84, versus last year’s 95, 94, & 93.

So overall, the OKC Metro Area is doing pretty darn well, all things considered.  Next Quarterly Installment: Where Did That Tax Credit Go?

*This is based on information from the MLSOK for the period 01/01/2008 through 03/31/2010.  While information is deemed reliable, it is not guaranteed.  Also, I hand-entered the numbers into the Excel sheet that I made the charts from, so I could have made mistakes.  But you’re a smart person, and you know not to assume that everything on the internet was inspired by divine authority and reviewed by jealously scrupulous academic panels.  Right?

Buyer’s or Seller’s Market?

“So how’s the market in Oklahoma these days?”

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I just came back from a (much needed) vacation to Hawaii with my family.  I found lots of beautiful things.  I stood under a waterfall (in VERY cold water) on Kauai.  Held my son’s hand as we stood on the shore; he laughed at the swirling rush of water that buried our feet with sand & tried to pull us out to sea.   I ziplined for the first time over a ravine on Maui, and discovered that yes, really, I’m just as much of an adrenaline junkie as I thought.

Our hotel in Kauai

But it’s good to be home, where I don’t have to fly anywhere for a while.  And to celebrate, I thought I’d give a little gift to the OTHER side of the blog-reading community:  those who prefer charts with useful information to meaningless pictures of non-utilitarian (if pretty) things.  Those who understand numbers and enjoy the ways they order the universe.  (Just for the record, I love math, too.  Yes, I am a nerd.  Don’t act surprised.)

I’m asked about the market a lot.  Isn’t this a bad market for getting into Real Estate?  Is it a good market for buying a new house, for selling my rent house, for investing?  Is it a buyer’s or a seller’s market?

First of all, buyer’s vs. seller’s market.  This is statistically determined, and it’s actually a fairly easy calculation.  You take the number of listings currently on the market*, and divide it by the average number of homes that sell in a month (I take the average of the past 2-3 months, though see my following caveat about current conditions), and that tells you how many months’ worth of inventory is sitting on the market at month’s end.

L/P=I

L = Listings on the market

P = average # of properties that sell (their status in the MLS changes to Pending) in a month

I = # months’ worth of Inventory left

When there is less than 6 months’ of inventory left on the market, it’s a seller’s market.  Homes are selling quickly enough that sellers aren’t having to do many negotiating acrobatics in order to sell their homes in a reasonable amount of time; well-priced and well-prepared homes are tending to sell within six months.  There is a lot of demand for the seller’s supply.

When there is more than 6 months’ of inventory on the market, it’s a buyer’s market.  Homes are sitting on the market longer, and buyers are in a more powerful negotiating position because there is less buyer demand for the sellers’ supply.

There are currently 8,776 active residential listings in the OKC Metro MLS.** 1135 homes sold in May, 2010; 2363 in April (tax credit, anyone?  anyone?), & 1876 in March. This averages out to 1791.3 sales per month.  8776/1791.3=4.9 months.

The problem with this equation — and I can already hear you, you don’t have to yell — is this: giving equal weight to the extraordinarily high sales numbers in April gives us a misleadingly optimistic view of the sales we can expect going forward.  In fact, the massive activity in March & April due to the Tax Credit will likely prove to be at the expense of overall sales activity over the next few months, because people who would normally have gotten the new-home-buying bug over the summer caught it earlier this year.

In this case, I would use May’s numbers solely and disregard April & March.  So our new equation becomes: 8776/1135=7.7 months’ inventory.  As you can see, this makes a substantial difference — the difference, in fact, between a hot seller’s market and a more neutral market that marginally favors the buyer.

As to whether the market is “good” or “bad” for a particular endeavor … here’s my opinion.  The best time to buy a home is when you can afford the kind of house that you will love to live in.  The best time to sell is when you want to leave the house you’re in, and you have enough equity built up that you can list the home at a competitive price.  The best time to buy investment property is when you can afford the acquisition & holding costs, & the (diligently verified) projected profit will cover those costs within an acceptable timeframe; the best time to sell investment property is when it no longer profits you to own it.

What I mean is this:  the market is interesting, but the decisions you make to buy or sell a home or investment should be primarily influenced by your own goals and financial situation.  Understanding the market can help you when estimating potential purchase prices, but it won’t help you determine whether moving is right for your family, at this particular point in your life.  Just because prices are up doesn’t mean it’s time to sell, & just because they’re down doesn’t mean it’s time to buy.

*There’s another school of thought where you take the # of listings on the market during the last month & divide it by the # of listings sold during that month, but I don’t subscribe to it, mainly because my sellers or buyers are looking to conduct their business in the present tense, and secondly because our particular MLS system is surprisingly difficult to navigate when it comes to getting the total number of listings that were active during a specific month without regard to their current status.  So I go with my method instead.

**Legalese:  These data are based on information from the MLSOK for the period 04/01/2010 through 06/01/2010, accessed 06/11/2010.  While information is deemed reliable, it is not guaranteed.

Staging to Sell

Staging’s a pretty hot topic.  The premise — that a well-prepared and well-presented home will sell quicker &/or for more money — makes sense, and the process — the actual making-it-pretty work — is fun, so what’s not to love, really?

I like to say that there are three levels of staging a home, and the level of involvement and investment that a seller chooses will depend on their specific circumstances.

The first level — and unless there are some really strangely extenuating circumstances, this is an absolute must for every home on the market — is to clean the house .  Obvious, right?  Clean It to Close It.  Have you ever read the Little House on the Prairie books?  There’s a part in one of them (it’s obviously been a while, since I can’t even remember which book, but I used to read them every winter w/ my Mom) where the family Spring Cleans their home, and it sounds labor intensive to say the least.  That’s what you’re going for; EVERY surface in the home should shine, gleam, glow, or glimmer.  The sinks should be mirror-bright — there’s a great step-by-step of shining your sink available here.  The floors should be spotless; the woodwork should glow w/ care (& possibly a bit of lemon oil).  Don’t forget doorknobs — it’s the one part of the home they buyers will definitely physically touch, so they should be clean & shiny. Windows should be clean enough that they look like they’re not there.  Etc.  And if you don’t want to do all of it yourself, that’s fine; there are make-ready services available and I’d be happy to recommend a few.  The point is that it needs to be done, not that you have to be the one to do it.

Before & After

The second level is thinning out & decluttering.  You’ll probably do a little of this naturally while cleaning — clearing off counters, for instance — but this is taking it to a new level.  If you’re like most people (you may not be; if you’re a beautifully organized minimalist, that’s great, but for the rest of us …) you’ll probably need a storage facility, and start filling it up.  You want the bare minimum in each room; places to sit, place to set down a drink or a book, and lamps, and not much else.  While we’re on the subject of lamps, LAMPS ARE ESSENTIAL.  Buyers feel uncomfortable and unsafe in dark rooms and dark houses, and that makes them want to leave.  You want them to want to stay. And nothing creates a welcoming atmosphere like  a well-lighted space.

Also, family pictures.  I know you love them.  I love them, too; my son is the light of my life, and I love being able to see him.  But when I sell my own place, I’m going to put them away.  A couple of years ago, some friends of mine needed a bigger house for their children and, since both owned their own businesses, home office & studio.  We found a lovely place for a great price that was a little outside the area they were initially drawn toward, but the floorplan was fantastic and they loved the neighborhood and amenities, so we went to check it out.  When we got there, they had family photos all over the place.  Before even looking at the rest of the house, my buyers examined the photos trying to see if they knew any of the family.  (I think we determined that they didn’t, but they looked a little familiar.)  On a related — but much creepier — note, another agent was telling me about the time he was showing a house and, while the wife checked out the kitchen, the husband studied the photos lining the hallway and remarked to the agent, “Man, their daughter’s *hot*.”

This is NOT where you want a prospective buyer’s focus to be when they look at your home!

The third staging level is the all-out one; it’s about what you add to your home to make it look its best.  This can be anywhere from a few well-chosen accessories, a fresh coat of paint, and vases of fresh flowers to draw attention to your home’s best features to completely different furniture, decorative accents, window treatments, etc.  The sky’s the limit (well, and those dollar signs they keep putting on everything).

I actually work with an award-winning staging professional, and my sellers get the benefit of her expertise and experience at no additional cost.  We set up a staging strategy that fits with the seller’s timeline, level of desired involvement, and budget, and have the property looking its best by the time it goes on the market.

Adrift

I spent yesterday evening catching up with a good friend — my cousin, actually — who’s on leave for a few days after a tour onboard a US Navy ship.  He’s next heading up to the Northwest to be stationed there for a time.  He talked about the detachment you feel coming back after a long time on ship, especially when you’re faced with the daunting prospect of moving to an unfamiliar city — knowing you’ll, at some point in the near future, be moving away yet again. He’d made close friends in his last city, as well as the one before that, and … now what?  Time to start all over again.

We talked about how, after much of this, the effort new relationships take begins to seem like too much work for too brief a reward, especially when you know that it will be only a few short months before you say goodbye.  Again.

Not his ship, obviously.

One of my first listings when I had just gotten into Real Estate was a wonderful couple from my church.  She sang beautifully in the praise team.  He’d been a professional football player before he retired.  They were the darlingest. They had children — and, more importantly, grandchildren — in Texas, and it was time for them to move a little closer and spend more time with their little ones’ little ones.  We put their house on the market, all clean and sparkly and well-priced — but needing a new roof, for which they were offering a concession — and it sold in a little over 30 days for more than the asking price.

The couple moved while the property was still on the market, the negotiations were handled over phone & fax while they settled in to their new routines, and they were able to sign their closing documents at a title company in their new hometown without having to come back.  It made short work of getting on with their lives among the people they love.

I mean, how much of who we are and how we feel has to do with the people surrounding us?  It seems to me that ‘at home’ is more a state of relationships and connections — our emotional refuge, if that makes sense — and when that relational shelter is damaged or missing then the physical shelter is almost incidental.  (Almost.  At least, that is, when we have it; homelessness is a topic for another day.)

I guess I’m trying to say that home – real home, that psychological and emotional place where you are welcomed and loved by people you care for in return … it’s worth the effort.  No matter how much effort it is.  And no matter how many times you have to recreate it.

The Moving Question: Buy First, or Sell First?

I hear this all the time.  “We really want to move, but REALLY REALLY don’t want to sell our place and then have nowhere to go, you know?  So we should find a house FIRST, and THEN put our house on the market, right?”  Buyers and sellers talk in caps all the time.

Well … that’s one strategy.  Not the one I’d pick, though, and the reason is contingency.  We have a form for making an offer to purchase a home contingent on the sale of the buyer’s current one.  Now, there are all sorts of normal contingencies already in Oklahoma’s purchase contracts — the property must appraise if the buyer’s getting a mortgage, the property must pass inspection, the seller and buyer must fulfill their obligations — but there are ways to virtually guarantee that all of them are met.  To make sure the property appraises, price it right in the first place.  To pass inspections, get a pre-inspection.  Etc.

If a seller receives a “contingency offer” (really creative name, isn’t it) and another offer that is not contingent on the sale of the buyer’s house, assuming they’re both reasonable offers, the seller will — and should — take the non-contingent offer every time.  The seller can’t do a thing about the buyer’s home selling, and hanging their own financial goals on the likelihood that the buyers will be able to sell their home quickly enough and for enough money … you see how this gets complicated and uncomfortable?

Another way to look at it is power.  The more power you have, the more likely it is that you will get what you want.  (Thank you, Machiavelli.)   You have more power as a seller.  Even in a buyers’ market, even when home prices are falling, no matter what, you have the product.  And if you correctly price, prepare, and promote that product, it will sell.  When it does, that in turn gives you more power when negotiating with the seller of the home you’re wanting to buy, because they won’t have to wait on you.

I’m not saying don’t look for a new house until you’re hunkered down in a one-bedroom month-to-month apartment with your three energetic kids and enough boxes to fill two U-Hauls; I’m just saying that you should start your move from a position of power and security as a well-informed, well-prepared seller, and that will make the whole process a lot smoother.

Hello world!

Hi!  I’m Mel; I’m the author/blogger person around here, and I’ve created this blog as a place to share my thoughts, insights, and experiences with selling Real Estate in Oklahoma.  This is a wonderful place to live; hospitality and “making you feel at home” is such a huge part of our shared culture.  That’s one reason I love what I do – because, at bottom, the real estate business is about people and the places that are important to them – the places where they feel at home.  I get to help other people feel “at home” – safe, hopeful, in control – even during the sometimes chaotic process of leaving one home for another.

The places that are most important to me are all within a thirty mile radius.  Crazy, eh?  First, of course, is my childhood home in a small town south of Norman.

Dad's Nissan 280ZX

Obviously, this is not a picture of the house.  However, it is a picture *from* the house, and it shows what I most loved about living where I did (no, not my Dad’s rotation of increasingly impractical but undeniably pretty cars):  the beautiful view and wonderful landscape.  The house faced west, so we could see the sun setting over the woods every night (well, every clear night), and there were walking trails through the woods to the east of the house that my Dad carved.  I was an only child, and the best times were when my cousins would visit and we’d climb the giant oak tree out of the picture to the right, or go exploring up and down the creek that separated our acreage from my grandparents’ further west.  Or when we’d go fishing in one of the ponds on our or my grandparents’ land, or ride our horse Patches, or build forts with the hay bales in the barn, or …

It was a great place to be a kid.  I lived there, barring one semester in an apartment closer to my college campus and another studying abroad, my whole unmarried life.  My parents still live there, and since it’s not very far away, I visit quite often.  The most wonderful thing about it – that I didn’t realize until a few months ago – is how *quiet* it is out there!  Street noise is next to nonexistent because they live 1/3 of a mile back from the road.  It’s blissful.

And then, my last year in college, I experienced what it’s like to buy a house!  It was a new house, and my fiancé and I picked out the colors and everything!  How exciting!  Actually, I didn’t get the full experience, because Jared actually bought it and I didn’t do much more than say “That carpet’s pretty, and how about THIS grout?” before leaving for New Zealand (the aforementioned Study Abroad interruption).  My Jared did all the real work – the money-making, form-filling-out, and (most strenuously) the sodding – while I was nerding it up taking classes on Tolkien and meeting extras in the Lord of the Rings movies.  And after I got back – a very SHORT time after, I think we moved the wedding date two or three times, getting sooner each time – we got married and I moved in to Our First Place.

Our First Place

Classy, no?  No, we did not sleep on this.  This was our ultra-chic “daybed” in the living room … taste, I’m afraid I had it not.  That’s Skittles; at this point our other cat Lachlyn’s probably lying in a sink somewhere.  He was, if I remember right, in a big lying-in-the-sink phase then.  The thing I liked best about this house was the rose garden I planted with roses my Mom got me for my twentieth birthday.  The Our Lady of Guadalupe (that you can see, the one with the pink blooms) actually thrived, becoming a great hulking monster after a couple of years, despite my somewhat indifferent care.  I learned to cook in that house (more or less).  We had a third bedroom we never used, because I hadn’t yet figured out that we could work in separate rooms.  Pity poor Jared. We had people over – I had never entertained before, so it went with a lurch and a stutter most of the time – and lots of family get-togethers.  Fun, fun, fun.

Though we’ve moved on, we kept our first place as a rental, and let me tell you:  owning a rental property is not as scary as you think.  We use a great property manager, so no midnight phone calls griping about leaky toilets or any of those nightmares.  The house is in good condition and a great location (obviously; why else would we have lived there?!) so it stays rented.

So we moved into a bigger place – still three bedrooms, two-story this time, though, with the third bedroom upstairs big enough for a second living room, almost.  Jared immediately claimed it, and it was only with great fortitude that he refrained from pouring boiling oil down the stairs when I came up to pester him.

This was my first taste of negotiating with a seller, rather than talking with a builder.  WHAT an experience!  They were selling their home themselves, and, well, I don’t think that was a very good idea on their part.  We gave a fair price and terms for their home, but I think the negotiating process was more stressful (for us AND them) than it should have been.  She was, I think, very attached to the home, and he wanted to move ASAP.  This made our discussions … awkward.  It worked out in the end, but how much better could it have been, you know?

This place had a wonderful private courtyard off the master bedroom.  It wasn’t really a real courtyard, but that’s what I called it because I’m pretentious.  Getting the idea that outdoor space is important to me?

Courtyard

It was in this house that I found out I was pregnant for the first time; it was to this house we returned, heartbroken, when we found out I wasn’t anymore.  Family get-togethers here were a little easier because it was bigger – and there was more room in the kitchen, which is VERY important in a family full of strong-willed women who all like to cook.

The saga, of course, continues to other homes and other experiences, most of which are quite wonderful.  We brought our son home to our current condo a little over a year ago; he learned to crawl, not just scoot, in this living room.  I learned how to sew making curtains for our windows here.  (If you come over, the ones in the living room were done last, so they’re the ones with the fewest mistakes.)  And our baby’ll soon be racing his noise-making push toys up and down the halls — and I’ll be planting another rose garden, and Jared will be digging a moat around his new study –  in the home we’re building, which will (fingers crossed!) be complete this summer.

So, all that to say … Houses aren’t just about houses.  They’re wells, or banks, or vessels of the memories that make us who we are.